Death and Taxes…..

AUGUST 13, 2013
It is sometimes said that there are only two certainties in life – death and taxes. But one of the unexpected changes in this year’s Budget was a major change which will affect a very simple and long established Inheritance Tax (IHT) planning strategy.

Broadly, new measures which limit the deductibility of debt were introduced without notice or consultation. The IHT planning this affected was as follows…..

A person with a large potential IHT liability ( usually a property portfolio) would borrow against it and use the proceeds of the loan to invest in assets on which Business Property Relief (BPR) or Agricultural Property Relief (APR) could be claimed, and thus were exempt from IHT. These did not need to be directly held assets as there were many specialist investment funds and trusts which held and managed qualifying BPR and APR assets.

The effect of this planning was that after a 2 year holding period, the IHT chargeable property was turned into exempt property. Very simple .

Going forward however loans will not be deductible unless there is a commercial reason for the debt not to be repaid, effectively scuppering this type of planning in the future, but at least for people who have already entered into this type of plan, the relief stands.

Much worse is the position of non-domiciles, who borrowed against UK assets to invest the money offshore. This is also now ineffective for IHT purposes even if the arrangements were made many years ago.

To talk through your own position, especially if you think you may be affected,  contact us on 0151 228 8977